Korean pharmaceutical companies received lower ratings than non-pharma businesses in the environment section in their environmental, social, and governance (ESG) performance, according to the Korea Corporate Governance Service (KCGS).

To address this problem, they should check ESG issues regularly and reflect them on their management, an expert said.

Yoon Jin-soo, head of the ESG Service Division at the Korea Corporate Governance Service (KCGS), speaks on the local pharmaceutical industry’s ESG management at an online forum on Friday.
Yoon Jin-soo, head of the ESG Service Division at the Korea Corporate Governance Service (KCGS), speaks on the local pharmaceutical industry’s ESG management at an online forum on Friday.

Yoon Jin-soo, head of ESG Service Division at KCGS, explained the growing importance of ESG in the pharmaceutical sector at an online forum on Friday, hosted by the Ministry of Health and Welfare and organized by the Korea Health Industry Development Institute.

Investments in domestic ESG companies are increasing every year in Korea.

The National Pension Service’s investment in ESG companies reached 32.2 trillion won ($27.3 billion) as of the end of 2019.

Also, local banks such as KB Kookmin Bank and Shinhan Bank use ESG criteria to review corporate loans and interest rate benefits.

Especially after the outbreak of Covid-19, the social category of ESG -- such as global supply chain management, contribution to local communities, and workplace safety – has become more important.

With increased attention to ESG, regulations have been enhanced.

In January, the Financial Services Commission said it would obligate listed companies on the benchmark Kospi with total assets of 2 trillion won ($1.69 billion) or more to disclose information on ESG activities from 2025.

“The demand for ESG activities will gradually rise on the institutional and cultural level. So the spread of ESG activities will be a crisis and an opportunity at the same time,” Yoon said. “If companies regard it as if they don’t need it, they will have a substantial burden on sustainability. But if they respond it preemptively, they will become more competitive than others.”

KCGS’ evaluation showed that local drugmakers’ ESG performance was similar to those of listed firms in general.

However, pharmaceutical companies had poor ESG outcomes in the environmental category, including environmental management, environmental performance, and stakeholder response, compared to the non-pharmaceutical sector.

In the governance category, drug companies faired similarly with non-pharmaceutical companies, but drug firms needed improvement in management transparency, KCGS said.

Pharmaceutical and healthcare companies formed the Pharmaceutical Supply Chain Initiative (PSCI) to develop guidance regularly and share it in other countries.

Multinational drug companies, including GSK and Roche, have established mid-to-long-term environmental goals, according to Yoon.

Biopharma Investor ESG Communications Initiative, a group of biopharma firms, suggested 12 ESG topics, including product safety and supply chain management.

The U.S. Sustainability Accounting Standards Board (SASB) suggested seven ESG disclosure factors for the pharmaceutical industry. The factors include accessibility to drugs, product safety, clinical trial practice, human resources management, business ethics, and supply chain management.

“Pharmaceutical companies need to regularly check ESG issues that evolve every year and reflect them in management,” Yoon said. “If they select ESG factors required for their organization, they should discuss them at the board level, not at the working level.”

Also, drug companies should update and disclose their ESG activities on their websites or through corporate reports and IR briefings, even if they cannot release a sustainability report or an ESG report, Yoon went on to say.

So-called “ESG washing,” or deceiving investors as if the company’s EGS performance is good, could damage its corporate value, he added.

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